Alsco Linen Pty Ltd v Cox; The Church of Jesus Christ of Latter Day Saints & Anor v Rahme & Anor

Supreme Court of NSW|2003-05-26|Before: Michael Grove J, Grove J

CITATION : Alsco Linen Pty Ltd v Cox; The Church of Jesus Christ of Latter Day Saints & Anor v Rahme & Anor [2003] NSWSC 550 HEARING DATE(S) : 26 May 2003 JUDGMENT DATE : 24 June 2003 JURISDICTION: Common Law JUDGMENT OF : Michael Grove J at 1 DECISION : SUMMONS DISMISSED

CATCHWORDS : LOCAL COURT - APPEAL - QUESTIONS OF LAW - RECOGNIZED PRINCIPLES APPLICABLE TO PROCEDURE TO CHALLENGE RETAINER OF SOLICITOR - STATUTORY LIMIT TO APPELLATE INTERVENTION - ABSENCE OF ERROR IN POINT OF LAW RELEVANT TO DECISION LEGISLATION CITED : Local Courts (Civil Claims) Act 1970 A W & L M Forrest Pty Ltd v Beamish & Ors 1998 146 FLR 450 @ 451 Athanasopoulos & Ors v Moseley & Ors 2001 52 NSWLR 262 Australian Associated Motor Insurers Ltd (AAMI) v NRMA & Anor [2002] FCA 1061 Australian Workers Union v Bowen 1946 72 CLR 575 Banco de Bilbao v Sancha (1938) 2 KB 176 @ 192 CASES CITED : Cook v Pasminco Ltd (No 2) 2001 ATPR 41/800 John Shaw & Sons (Salford) Ltd v Shaw (1935) 2 KB 113 Re Global Imaging Management (In Liq) [2001] NSWSC 476 Richmond v Branson & Son (1914) 1 Ch 968 Russian Commercial and Industrial Bank v Comptoir d'Escompte de Mulhouse (1925) AC 112 Woodside Petroleum Development Pty Ltd v H & R-D & W Pty Ltd 1999 20 WAR 380 @ 387 PARTIES : Alsco Linen Pty Limited & Anor v Cox; The Church of Jesus Christ of Latter Day Saints & Anor v Rahme & Anor FILE NUMBER(S) : SC 13346/02; 13347/02 COUNSEL : S. Rares SC with D. Studdy (Plaintiffs) J. Hilton SC with K. Manion (Defendants) SOLICITORS : Barrie Fudge & Co (Plaintiffs) Smith Partners (Defendants)

LOWER COURT Local Court JURISDICTION : LOWER COURT 174762/01; 172249/01 FILE NUMBER(S) : LOWER COURT Magistrate H. Dillon JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

13347/02 THE CHURCH OF JESUS CHRIST OF LATTER DAY SAINTS & ANOR v RAHME & ANOR 13346/02 ALSCO LINEN PTY LIMITED & ANOR v COX

1 HIS HONOUR: These two matters raise identical questions and it was agreed by the parties that the issues would be argued in the context of the summons in which the Church of Jesus Christ of Latter Day Saints is first plaintiff. Judgment in the same terms can therefore be given in both cases. 2 The litigation represents a further chapter in disputes between insurers about the recovery of the cost of replacement car hire whilst vehicles, damaged in collisions, are repaired. Ignoring some technical precision, the claims have frequently been referred to as demurrage. On 5 March 1999 NRMA Insurance Ltd (NRMA) entered a "continuous motoring services agreement" with Hertz Australia Pty Limited (Hertz) whereby an insured under a particular NRMA policy, not at fault, was provided with a car from a dedicated fleet maintained by Hertz. While repairs were being undertaken, the substitute vehicle was supplied for up to fourteen days at no cost to the insured (or something similar at a preferential rate if the insured was at fault). The insured entered into a hire agreement directly with Hertz but NRMA was billed for the first fourteen days rental. 3 The outcomes of earlier curial contests can be studied and the judgments reveal considerable background, all of which need not be recited for present purposes. See Athanasopoulos & Ors v Moseley & Ors 2001 52 NSWLR 262; Australian Associated Motor Insurers Ltd (AAMI) v NRMA & Anor [2002] FCA 1061. 4 It might be noted that in Athanasopoulos, at the first instance court the right of subrogation whereby NRMA had brought action in the name of its insured was outside of the scope of the issues. There was said to be no effective pleading. The appellate court endorsed this view, observing that the "courtesy car program" was not part of the cover provided by the insurance policy. The cost of hire of a vehicle was also specifically general exclusion 2 in the policy relevant to the current proceedings, a copy of which is exhibited to the affidavit of Mr Fudge sworn 7 February 2003. 5 In part contrast however, in the current proceedings there is express pleading raising the issue of subrogation insofar as it is alleged that the action has been instituted in the name of the insured by a solicitor on the instructions of the insurer (NRMA). It is common ground that a retainer agreement between the insured and the solicitor postdated the commencement of action. Issues were posed as to the efficacy of purported ratification of previous steps and the procedure to challenge retainer. 6 A form of such a retainer agreement is, I note in passing, recited in the judgment in AAMI. There is also an observation that since November 2001 a replacement policy issued by NRMA has provided for "optional cover" for the cost of hiring a vehicle. This is affirmed in the present case in the affidavit of Bronwyn Smith sworn 7 May 2003. 7 In Athanasopoulos, with the endorsement of Handley and Beazley JJA, Ipp JA reiterated his remarks in Woodside Petroleum Development Pty Limited v H& R-D & W Pty Limited 1999 20 WAR 380 @ 387: "Although no allegation as to the right of subrogation has to be made in the statement of claim, the defendant may raise the absence or inadequacy of that right in its defence; it is then for the insurer to justify its right to proceed in the name of the assured". 8 The challenge to subrogation in the present case, in the sense that it is alleged that action has been brought in the name of the insured at the instigation of the insurer, was sought to be advanced by requirements that in answer to subpoenae served upon NRMA and the solicitor on record for its insured, there be produced certain documents including retainer agreements. 9 On 17 October 2002 in five proceedings before the Local Court including the two matters now before this Court, subpoenae were called upon and documents in respect of which there was no controversy were produced and made available for inspection. As to a balance of documents sought, production was resisted. For reasons delivered on 15 November 2002 the learned magistrate set aside the subpoenae. He was, of course, effectively dealing with the balance following production of uncontroversial material. In a written submission counsel summarized the outcome as a determination that the subpoenae were "a fishing expedition" insofar as they sought the retainer agreements because the retainer of the solicitors had not been challenged and, obiter, that if there was error in that regard, the retainer agreements did not attract legal professional privilege. 10 At the commencement of the hearing in this Court, it was stated by counsel that it was agreed that the appeal was limited to the issue concerning the retainer agreements. The summons also sought relief otherwise than strictly by way of appeal.

11 An appeal to this Court is restricted by s69 of the Local Courts (Civil Claims) Act 1970 namely: "69. Appeal (1) Subject to subsection (2), all judgments and orders of a court exercising jurisdiction under this Act shall be final and conclusive. (2) A party to proceedings under this Act who is dissatisfied with the judgment or order of the court as being erroneous in point of law, may appeal to the Supreme Court therefrom. (2A) However, in the case of proceedings in the Small Claims Division of a court, an appeal under subsection (2) lies only on the ground of lack of jurisdiction or denial of natural justice. " 12 A further subsection (2B) has since been legislated but it is common ground that that provision does not operate in respect of the current cases. 13 It is convenient to note at this point that throughout the learned magistrate's reasons there is reference to AAMI as the insurer of the vehicle involved in a collision with a vehicle insured by NRMA. In AAMI Conti J recorded that there had been a "very large number of proceedings" in the Local Court between "NRMA insured" and "AAMI insured". It is agreed that the magistrate's reference was erroneous and that the relevant insurers in these cases were NRMA and American Home Assurance Co (AHA). Including the two matters now before the Court, NRMA and AHA are protagonists in five actions in which the total amount claimed is $1,746.80. A sixth action was identified of which the amount in issue was not stated but it was not suggested that the amount was substantial. In neither present matter does the claim exceed $600. 14 Each proceeding was brought in the Small Claims Division of the Local Court. There is no mention in the documentation provided in support of or resistance to the summons of transfer of either matter into the General Division, however later enquiry of counsel led to a statement that both parties accept that they were in that division at all material times for the purposes of the appeals. I have taken "appeals" to include other relief sought in the summons. 15 So far as the material before this Court shows, the litigation has not progressed beyond the orders by the magistrate setting aside the subpoenae. This has not inhibited the legal representatives of the parties from seeking to explore a wide range of issues said to be demonstrative of or not demonstrative of, error. 16 The jurisdiction of this Court to intervene is expressly limited to occasion when the judgment or order of the Local Court is erroneous in point of law. It is not a jurisdiction to review any observation concerning the law which happens to be made by the magistrate in the course of his published reasons. The recent amendment to the statute inserting s69(2B) making particular provision in relation to, inter alia, interlocutory orders suggests that, prior to amendment, an order such as made in the current case even if classified as interlocutory would be vulnerable under s69(2). Neither party contended that the order setting aside the subpoenae should be classified as interlocutory and I am content to approach the matters on that basis. 17 Although the learned magistrate extensively dealt with detailed submissions made to him, the reason for order was comprehensively stated thus: "Here, it seems to me, there has been a certain amount of shadow-boxing by the parties over the solicitors' retainer, but until the retainer is finally challenged, perhaps at the trial of these matters, I cannot see how the retainer document is relevant to the proceedings. On the contrary, from what I have heard so far, the AAMI (sic) insured are seeking the retainer in order to determine whether or on what grounds it could be challenged. In my opinion, that is nothing but a fishing expedition and the subpoenae ought be set aside in respect of the retainer agreements and any documents which would be relevant only to that issue." 18 There was no challenge in the Local Court by way of notice of motion or discrete application. It is not entirely clear what was intended by the qualification "perhaps at the trial of these matters" but previous reference clearly shows that he was holding that there was not a challenge to retainer justiciable in the proceedings currently before him.

19 The essential question therefore arises as to whether that conclusion was erroneous in law. The circumstance that the ruling might be categorized as procedural does not avoid the operation of s69(2). 20 NRMA submits that it is an established principle that any challenge to a retainer must be undertaken by a substantive application (for example by way of notice of motion) and not merely by way of defence. 21 In England, as long ago as 1914 Warrington J ruled: "But the real question is the authority of the solicitor. Is that a question which can be raised as a relevant issue in the action and at the trial? No authority has been cited in support of the affirmative of such a proposition, and, in my opinion, it is impossible, according to the ordinary practice and procedure of the Court, to justify that proposition. The business of this Court could not be carried on if one were not entitled to assume the authority of the solicitor unless and until that authority has been disputed and shown not to exist in the proper form of proceeding, namely, a substantive application on the part of the parties concerned to stay the proceedings on the ground of want of authority." Richmond v Branson & Son 1914 1 Ch 968 @ 974. 22 Conti J in AAMI referred to this as long established authority. Young J has observed to similar effect: "One of the defences is that the first plaintiff did not authorise the commencement of these proceedings. I indicated that I did not consider that that was a proper defence, but that if that matter were pressed, it should be raised by motion to challenge the retainer. The motion was then filed, and I indicated I would hear it on 5 June 1998." A W & L M Forrest Pty Ltd v Beamish & Ors 1998 146 FLR 450 @ 451. 23 It was submitted by AHA that there had been a clear challenge to NRMA's retainer and this was done ore tenus by counsel in these terms: "So in answer to the allegation that retainer is not in issue, true it is that there is no motion presently before the Court that says you are not entitled to bring these proceedings. But it is the corollary or the flip side of the defence of subrogation that has been pleaded." (Transcript 17 Oct 2002 @ 14). 24 Reference was made to Australian Workers Union v Bowen 1946 72 CLR 575. The essential issue in that case was the validity of a bankruptcy notice authorized by only some of judgment creditors which was issued by a solicitor whose retainer did not extend beyond a suit out of which a debt for costs had arisen. The case was referred to as an example of a challenge to retainer being dealt with in the absence of a separate substantive motion. Rich J observed: "No doubt substantive applications might have been made to test the validity of the bankruptcy notice and the adequacy of the solicitor's retainer to issue it but the objections to both these matters in these respects were discussed at the hearing and satisfactorily disposed of by observations from the bench." - @584. 25 However, Dixon J also observed: "As the authority of the solicitor who obtained it was in question, it would seem that an independent application would have been the more regular way of attacking it: see Banco de Bilbao v Sancha (1938) 2 KB 176 @ 192 to which Williams J referred in this Court. But in the Federal Bankruptcy Court that question was gone into upon the hearing of the petition without objection ……" - @ p 590. 26 And Williams J wrote: "The proper procedure for a defendant who wishes to challenge the retainer of the solicitor for the plaintiff is to file a substantive motion and not to raise the want of authority by way of defence to the proceedings Richmond v Branson & Son (1914) 1 Ch 968; Russian Commercial and Industrial Bank v Comptoir d'Escompte de Mulhouse (1925) AC 112 @ p 130; Banco de Bilbao v Sancha (1938) 2 KB at p 192. I think that the issue of a bankruptcy notice which is a process of the Court comes within the principle of these cases and that the respondent should have raised the question in this manner. But it was held in John Shaw & Sons (Salford) Ltd v Shaw (1935) 2 KB 113 that the Court has inherent jurisdiction to stay or strike out the proceedings at whatever stage the facts establish want of capacity or authority to sue. In the instant case no objection was taken to the procedure. If it had been taken, the petition could have been stood over to enable the respondent to launch a substantive application. It is now too late to take the objection. " - @ 592. 27 As the above extracted submission to the magistrate by counsel then appearing for AHA clearly acknowledges, there was an express objection to the absence of proper procedure by the opponent in this case which had submitted, as stated, that "retainer is not in issue". 28 The learned magistrate did not err in point of law in holding that challenge to retainer was required to be independently made where an objection had been taken. 29 I would not understand the dictum of Ipp J in Woodside Petroleum that the insurer must justify its right to proceed in the name of the insured to intend departure from the long established procedural principle of separate substantive challenge to retainer articulated by Warrington J, applied by Conti and Young JJ and approved by three members of the High Court Bench in terms of the extracts which I have cited. 30 It follows therefore that the magistrate did not err in law in ruling that the retainer agreement was irrelevant to any issue then before him. It was not relevant therefore to produce retainer documents for examination and no error is revealed in classifying the attempt to have them produced as "fishing".

31 I am conscious that it has been said that "the parties wish the merits of the matter to be determined and do not want any procedural irregularities to stand in the way" but I decline to exceed the jurisdiction to determine whether the orders made in the Local Court were erroneous in law. Consent of the parties cannot provide a foundation for circumventing the plain intention of the legislation. 32 It is also inappropriate to expatiate upon the alternative argument as to privilege upon which views were expressed in the Local Court or on the existence or absence of legitimate forensic purpose if the issue of retainer had been properly put before the Court. 33 That what is sought is an advisory opinion can be demonstrated by reference to one matter of contradictory submission by the parties. In Cook v Pasminco Ltd (No 2) 2001 ATPR 41/800 Lindgren J had concluded that, at least as general law no legal professional privilege attaches to a costs agreement. However in Re Global Imaging Management (In Liq) [2001] NSWSC 476, Santow J, referring to the Evidence Act, held that a funding agreement may be privileged where it reveals the confidential circumstances of the availability of legal advice and throws oblique light on circumstances to which advice is directed. In the current cases, the Local Court has not even reached a point of being asked to consider circumstances and any opinion now expressed would be not only hypothetical but dependent upon findings not yet, and which may or may not in the future be, made. 34 It is the litigant's decision whether to seek to undertake what Williams J in particular prescribed as "the proper procedure". 35 The appeal being governed by s69(2) of the Local Courts (Civil Claims) Act must fail. 36 The balance of the prayers in the summons can be dealt with compendiously. They are sought to be supported by four propositions: in short, that the insured paid nothing for the cars and therefore suffered no loss; that NRMA has no right of subrogation; that there was no cause of action for the insured to assign to NRMA and, in any event, a cause of action in tort is incapable of assignment. 37 I express no view on the validity of any of these propositions beyond the observation that that, insofar as this Court is invited to assume or determine them, it is implied that they are issues in the dispute between the parties. There has been no hearing or determination of these matters in the Local Court the decision of which, unless erroneous in law, is declared by statute to be final and conclusive. Acceptance of the invitation to deal with these matters would be inconsistent with the statutory limitation. 38 The cases, so far as I can gauge, are part heard in the Local Court and there is no reason shown for this Court to inhibit the progress of the hearings to conclusion. I decline to grant the relief sought in paragraphs 5, 6 and 7 of the Amended Summons. 39 Each summons is dismissed. The plaintiffs are to pay the defendants' costs, the costs of the third defendant being those appropriate to a submitting defendant. **********

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